Lower truck sales may put freight rates on fast track

With truck operators deferring purchases due to the steep increase in interest rates, which has led to a slight shortage of trucks in the market, freight rates on major routes are likely to go up in the next couple of months.

This despite the fact that demand for trucks usually falls in the monsoon season.

According to Ariff Patel, vice-chairman, Patel Roadways, freight rates on major routes might see a rise of 5-8 per cent owing to the shortage of trucks.

"That would be a big increase," he says, adding that most routes continue to witness robust demand for trucks.

The freight rate on the Delhi-Bangalore route is currently around Rs 2,400 per tonne, while on the Delhi-Chennai route it is hovering around Rs 2,650 per tonne.

A report by Kotak Securities says the brokerage's proprietory diesel-adjusted freight index, which tracks rates on 26 routes across the country, was 2.3 per cent higher in May than April.

According to R Sridhar, managing director, Shriram Transport Finance, which gives loans to truck buyers, "Freight rates are stable at present, but operators will want to recover the higher cost of money, because it makes a difference to their economics."

In addition to interest rates, high insurance costs are eating into transporters' margins.

Sridhar confirmed that operators are postponing buying trucks because of the 400-450 basis points increase in interest rates in the last three months or so.

On an average, about 3 million trucks carry goods across the country every day, with about half of this number estimated to have taken to the roads in the last five years.

There are around 8,000 truck operators in the country and most of them depend on banks and finance companies for loans to buy trucks.

Sales of commercial vehicles were up 3.6 per cent in April-May 2007 over the same period last year. While sales of medium and heavy commercial vehicles went down 6.14 per cent, that of light commercial vehicles were up 18.8 per cent.

A spokesperson for Tata Motors said, "Adjustments are being made in commercial vehicle production in line with market dynamics."